The project that began as a dream to build South Korea’s largest-ever property development is now looking more like a nightmare for all involved.

The project’s plans are aimed at turning an idle swath of land in central Seoul that’s one-and-a-half times larger than New York’s Central Park into the Dream Hub, a glittering $28 billion international business development with office and residential sky-scrapers, hotels, malls and parks.

But earlier this week, lead developer Dream Hub PFV of the development defaulted on a $4.7 million interest payment, the latest stumble on a path that began in 2006 when debt-ridden Korea Railroad, or Korail, went looking for a way to refinance its debt.

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Korail decided it would turn its railway vehicle base in Yongsan into a commercial district. In 2007, Korail and the Seoul government expanded the development’s scope to include residential space, which coincided with the city’s plan to revitalize its riverside areas, dubbed the “Han River Renaissance.”

As the project grew, more companies jumped in, from locals like the National Pension Fund and KB Asset Management, to foreigners like U.S. Prudential Real Estate Investment. A blueprint of the project boasted a 111-story skyscraper and scores of additional high-rises. The underdeveloped Yongsan area emerged as one of the hottest investment destinations in the country.

But the global financial crisis in 2008 brought a deep slump to the country’s property market. As unsold apartments and office-vacancy ratios increased, the project’s outlook became increasingly grim. In 2009, Dream Hub failed to pay land compensation to Korail. The next year, Samsung C&T, a trade and investment arm of the Samsung conglomerate and one of Dream Hub’s biggest investors, pulled out of the project. Korail, Dream Hub’s largest stakeholder, had been trying to salvage the project by easing contract terms for other investors. However, the disagreement between Korail, thousands of residents and 29 public and private companies couldn’t be solved.

On Thursday, shares of Lotte Tour Development, Dream Hub’s second largest stakeholder, fell 15% to a record low as jittery investors feared the lead developer’s Wednesday default might hurt the company’s financial standing.

According to local reports, residents may file a class-action lawsuit against the Seoul city government, Korail and Dream Hub PFV because the residents who are living in the development sites say they have been suffering under rules that ban reconstruction or modification of a building, be it a residential or commercial. And many residents who moved away from the Dream Hub area had to take out loans to buy new homes, as they were unable to sell their old ones. Now that the project is about to die or be scaled back, the value of their investments will go down, according to analysts.

Meanwhile, in a move to sooth public anxiety, the Ministry of Land, Transportation, and Maritime Affairs on Wednesday released a statement that there would be no disruption on the intra-city railway system operated by Korail.

On Thursday, Seoul Mayor Park Won-soon said in a radio interview, “We are thinking hard on how to minimize any damage to the residents.” But, he added, “there is a certain limitation on what role the city can play here.”

Korail is reported to hold an emergency investor meeting today with investors how to resolve the liquidity issue.